Thinking small
Businesses of all sizes tend to focus primarily on growth - but is this really the best route to success? Fleur Doidge digs deeper
"If you are not careful, you can grow your company to death," the author of the 2010 book Smart Growth, Ed Hess, says. "Bigger is not always better. For decades, growth has been a determining factor for success - but the truth is, growth can be bad. It can create serious business risks that if not properly managed can dilute a company's brand and destroy its value."
Hess, a business school professor at the US's University of Virginia, pointed in his book to the example of Toyota, a car manufacturer that scaled the heights in the 1980s and 1990s only to quickly come crashing down in the 2000s as it outpaced its ability to serve its customers.
In just a few months, the brand that had seemed on track to sustain a long-term course as the largest vehicle manufacturer in the world, with a widely envied reputation for reliability and quality at an affordable price, had eight million cars recalled and received a string of class-action lawsuits.
Akio Toyoda, the president of Toyota, in March 2010 issued a full statement apologising to customers. "Quite frankly, I fear the pace at which we have grown may have been too quick," he said. "Toyota's priority has traditionally been the following: first - safety; second - quality; and third - volume. These priorities became confused, and we were not able to stop, think and make improvements.
"Our basic stance to listen to customers' voices to make better products has weakened somewhat… I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced."
Small can indeed be beautiful - not merely cute and interesting- when it comes to businesses, at least some of the time. Yet this goes against various principles taught, or at least assumed, even at business schools the world over, for many years - that growth is good, that bigger is better, or at least a measure of success, and that all companies must grow or die.
"Contrary to popular opinion, there is no scientific or business basis for the belief that growth is always good," said Hess. "Clearly, it is not. That belief is actually one that is perpetuated by Wall Street. Shareholders demand short-term growth, so that is what companies deliver, even if what they are doing is unsustainable in the long term."
Long-standing mythologies about continuous economic progress were increasingly criticised as the teeth of the latest recession sank in around the world. Demonstrably, however, economies tend to go through cycles of boom and bust; presumably, at the micro, more granular level, individual businesses tend to do the same.
This may all sound a bit New Agey, but it is far from representing a simple-minded, hippie-like retreat from the hard realities of profit and loss in the business world. A smaller company may well find itself more agile in some respects and therefore closer to its customers. Dare we mention 2e2 at this point?
Sometimes you might need to grow bigger as a company, to take advantage of certain opportunities. Smaller companies in the channel that CRN spoke to agree: growth can indeed be good, so long as it is managed carefully and you don't ditch the very qualities that made you succeed in the first place.
If you are small, you may more easily become tangled in red tape - but then again, you may stick more easily to your knitting, and remain agile and responsive, ready to think outside that box.
Eliza Rawlings, chief business officer at Bath cloud services brokerage Cloud Direct, says it is crucial not to outgrow your ability to deliver quality to your customers. That may be even more true when delivering IT services on demand, where trust and reliability off-site as well as on-site may come to the fore.
Cloud Direct, formerly cloud service provider On Direct, has been providing managed IT services to businesses for 16 years, and has grown to 30 staff, serving 4,000 customers with cloud over the past 10 years. Developing a reputation for expertise and knowledge in the market has been key - especially as many businesses remain unsure what they want from cloud services and require more help from the provider.
"We are well known in the cloud market and people trust us, and if they want to buy additional cloud services they come back to us and say, ‘well, we're looking at Office 365 or whatever; what do you recommend?'," Rawlings confirms.
This has also meant a strong focus on appropriate certification for Cloud Direct, including ISO 20,000 and ISO 27,000 - which she suggests may play a bigger role in building customer trust in a smaller company than it might in a large corporate name.
A clear view of your path to the future can also be important, she says: "Our vision was always to be a cloud services brokerage. We started to go to market as an online backup service, and we built on that."
Rawlings maintains there is no need as such for the company to grow bigger - although it is still definitely growing, that is not the primary focus. "The market opportunities are growing, and we want to build a bigger and stronger business, but we are not growing out of necessity or coming across barriers where we cannot win a deal [as a result of our size]," she confirms.
Obviously, you need to invest in the right people, and the right percentage of people with sales skills, technical skills and so on; a small business cannot as easily carry employees who remain little more than passengers, not contributing much to its success.
Facing reality
Mike Trup, managing director and founder of Enfield-based software distributor Interactive Ideas, agrees with Rawlings but adds that his company has successfully changed direction over the years.
Founded in 1994 by Trup and Grahame Fernback, the VAD today focuses on enterprise software, with a big focus on open source. However, Trup notes that its initial plan was consumer CD-ROM packages - "that worked for a few years"- before it jumped into the enterprise space, a move it completed late last year.
The company now has 40 staff, and is turning over £37m a year, enjoying a compound annual growth rate over its lifetime of 24 per cent.
"There have been a couple of times when we took a step back. But we took all our resources when we saw the opportunity in enterprise software - six or seven years ago that was 30 per cent of our business and today it is 100 per cent," Trup says.
The transition was only completed late last year, and Trup is unsurprisingly keen to insist that a change of direction can work.
Perhaps that's only if it is a clear change of direction, entailing commitment to a new focus that is based on reality.
"Parties come to an end," Trup concedes. "You can be living in denial. I think a lot of companies do. We saw that we probably had another two or three years left, so it was time to start addressing it while we still had resources and strike fresh ground. And that is probably the biggest single thing - facing reality and working with that."
Keeping your gaze fixed on the future is crucial. Business plans are updated at least once a year. As a smaller company, it is easier for Interactive Ideas to encourage and foster contributions from all staff. Trup says the firm works hard to ensure everyone's ideas are considered - not least by an annual informal brainstorming session, where all staff, from all levels, are invited.
"You must focus on where you can add value, as a company," he says. "We talk about strategy quite a lot. Rather than simply saying, ‘we have to generate some cash'."
Richard McLoughlin, managing director of Derby-based networking, services and support provider Nowcomm, a Cisco reseller and unified communications (UC) specialist with 35 staff, agrees that knowledge and expertise are critical.
"As a smaller company, our advantage is that we are highly focused and specialised. In this industry there are so many ‘solutions' and everything has to interconnect - so it is not easy," he says. "We focus our expertise on a narrow range of products - we are a mobile UC partner."
Customers appreciate the more personal touch they can receive from a smaller IT provider, says McLoughlin, and are more inclined to come back, especially when they realise you are not trying to be all things to all people. And he worked at Cisco itself for seven years, so he knows about large corporates.
The smaller companies we spoke to were not that small, each boasting 30 to 40 employees, and they are all very proud of their rapid growth rate. The consensus seems to be that growth is indeed good - so long as it is done the right way. If not, it may be better to remain small, ensuring you can perform to the highest possible standard.